AN EXAMINATION OFTHE DRIVERS OF EXPLORATORY AND EXPLOITATIVE SEARCH

Abstract

Engaging in search behaviors is a critical activity of firms. Traditionally, the extent to which firms engage in search has been modeled as the level of R&D in which firms engage, or their patenting propensity. However, all R&D efforts and patents are not uniform in the type of search in which they are focused. Search efforts can either be directed towards gathering new knowledge and technologies (exploratory search) or better understanding the knowledge and technologies they currently possess (exploitative search). The type of search in which firms engage is related to outcomes such as technology discovery, new product launches and financial performance. Thus, the distinction between the types of search in which firms engage is an important one. However, it has largely been overlooked in studies using R&D expenses or patenting propensity as measures of search efforts.

Because of the importance of understanding the types of search in which firms engage, I sought to understand what drives each type of search. Drawing upon the Behavioral Theory of the Firm and Upper Echelons Perspective, I examined how problems firms face, slack resources, executive demographics and executive compensation drive exploratory and exploitative search. Support for my original hypotheses was poor, with only CEO age and equity ownership being statistically significant. However, post-hoc analysis revealed there are substantial differences between large and small firms in the pharmaceutical industry in what drives search, suggesting promising avenues for future research.